Second quarter revenues of $283.8 million, up 30% year-over-year

GAAP Diluted EPS of $0.46, up 24% year-over-year 

Non-GAAP Diluted EPS of 0.71, up 22% year-over-year

NEWTOWN, Pa., Aug. 04, 2016 (GLOBE NEWSWIRE) -- EPAM Systems, Inc. (NYSE:EPAM), a leading global provider of product development and software engineering solutions, today announced results for its second quarter ended June 30, 2016.

“We are pleased with our second quarter results, which delivered 30.3% year-over-year revenue growth,” said Arkadiy Dobkin, CEO and President, EPAM. “As we look at the remainder of 2016, various macro-economic and geo-political challenges could cause some unexpected volatility in the market, but we remain confident that we can achieve our top line growth objectives. Our long-term strategy remains intact and we will continue to focus on delivering the most innovative digital solutions to our customers and investing in our talent, capabilities and global delivery locations.”

Second Quarter 2016 Highlights 

  • Revenues increased to $283.8 million, a year-over-year increase of $66.1 million, or 30.3%;

  • In constant currency, revenue was up 33.9% year-over-year;

  • GAAP income from operations was $32.1 million, an increase of $8.5 million compared to $23.6 million in the second quarter of 2015;

  • Non-GAAP income from operations was $47.6 million, an increase of $10.7 million, or 29.1%, from $36.9 million in the second quarter of 2015;

  • Diluted earnings per share (EPS) on a GAAP basis was $0.46, an increase from $0.37 in the second quarter of 2015;

  • Non-GAAP quarterly diluted EPS was $0.71(*) compared to $0.58(*) in the second quarter of 2015;

    (*)Excluding the tax effect on non-GAAP adjustments, non-GAAP diluted EPS would result in $0.79 for the second quarter of 2016 and $0.64 for the second quarter of 2015.

Cash Flow from Operations

  • Cash from operations was $49.4 million for the first half of 2016, up from $9.0 million as compared to the first half of 2015; and was $38.5 million in the second quarter of 2016, up from $2.2 million in the second quarter of 2015;

  • As of June 30, 2016, cash and cash equivalents totaled $280.7 million.

Other Metrics 

  • As of June 30, 2016, total headcount was 20,761, an increase of 36.5% from 15,213 at June 30, 2015;

  • Total number of delivery professionals increased 37.4% to 18,206 in the second quarter of 2016 from 13,253 in the second quarter of 2015;

  • Billed and unbilled Days Sales Outstanding (DSO) decreased to 88 days for the second quarter of 2016 compared to 94 days in the first quarter of 2016.

2016 Outlook - Full Year and Third Quarter

Full Year

  • We are reaffirming our year-over-year revenue growth guidance of at least 26% after approximately 3% currency headwinds, resulting in constant currency growth of 29%. Given the various macro-economic and geo-political uncertainties, our normal visibility has been impaired and we could experience unexpected volatility over the next several quarters. We remain very confident about the continued long-term growth outlook for the business and the overall markets;

  • The full year GAAP diluted EPS will be at least $2.05, with an effective tax rate of approximately 21%;

  • The full year non-GAAP diluted EPS will be at least $2.97(*), which includes the tax effect from non-GAAP adjustments;

  • The full year weighted average share count is expected to be approximately 53.4 million diluted shares outstanding;

    (*)Under the previous reporting method, before considering tax effects on the non-GAAP adjustments, the full year non-GAAP diluted EPS was estimated to be at least $3.20.

Third Quarter

  • Revenues will be at least $295 million for the third quarter of 2016, representing a growth rate of at least 25% over third quarter 2015 revenues. This includes approximately 3% anticipated currency headwinds, meaning constant currency growth of at least 28%;
  • Third quarter 2016 GAAP diluted EPS to be at least $0.52;
  • Third quarter 2016 non-GAAP diluted EPS is expected to be at least $0.73, which includes the tax effect from non-GAAP adjustments and is based on an estimated third quarter 2016 weighted average share count of 53.6 million diluted shares outstanding.

Conference Call Information

EPAM will host a conference call to discuss results on Thursday, August 4, 2016 at 8:00 a.m. Eastern Time. The live conference call can be accessed by dialing 1-855-327-6837 (domestic) or 1-631-891-4304 (international). A telephonic replay will also be available approximately one hour after the call and can be accessed by dialing 1-877-870-5176 (domestic) or 1-858-384-5517 (international). The passcode for the replay is 10001455. The telephonic replay will be available until August 18, 2016. Interested investors and other parties may also listen to a webcast of the conference call by logging onto the Investor Relations section of the Company’s website at http://investors.epam.com.

About EPAM Systems

EPAM Systems, Inc. (NYSE:EPAM), a leading global product development and platform engineering services company, is focused on delivering results through best-in-class software engineering, combined with innovative strategy, consulting and design capabilities. With 23 years of experience in the information technology industry, EPAM’s 18,000 people serve our customers in over 25 countries across North America, Europe, Asia and Australia. EPAM was ranked #8 in FORBES 25 Fastest Growing Public Tech Companies and ranked as a top information technology services company on FORTUNE’S 100 Fastest Growing Companies.

For more information, please visit http://www.epam.com/ and follow us on Twitter (@EPAMSYSTEMS) and LinkedIn​.

Non-GAAP Financial Measures

EPAM supplements results reported in accordance with United States generally accepted accounting principles, referred to as GAAP, with non-GAAP financial measures. Management believes these measures help illustrate underlying trends in EPAM’s business and uses the measures to establish budgets and operational goals, communicated internally and externally, for managing EPAM’s business and evaluating its performance. Management also believes these measures help investors compare EPAM’s operating performance with its results in prior periods. EPAM anticipates that it will continue to report both GAAP and certain non-GAAP financial measures in its financial results, including non-GAAP results that exclude stock-based compensation expense, write-off and recovery, amortization of purchased intangible assets, goodwill impairment, legal settlement, foreign exchange gains and losses, and acquisition-related costs. Because EPAM’s reported non-GAAP financial measures are not calculated according to GAAP, these measures are not comparable to GAAP and may not be comparable to similarly described non-GAAP measures reported by other companies within EPAM’s industry. Consequently, EPAM’s non-GAAP financial measures should not be evaluated in isolation or supplant comparable GAAP measures, but, rather, should be considered together with the information in EPAM’s condensed consolidated financial statements, which are prepared according to GAAP.

Forward-Looking Statements

This press release includes statements which may constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the accuracy of which are necessarily subject to risks, uncertainties, and assumptions as to future events that may not prove to be accurate. Factors that could cause actual results to differ materially from those expressed or implied include general economic conditions and the factors discussed in our most recent Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. EPAM undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities law.

EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(US Dollars in thousands, except share and per share data)

 Three Months Ended
 June 30,		 Six Months Ended
 June 30,
 2016 2015 2016 2015
Revenues$283,832  $217,781  $548,314  $417,826 
Operating expenses:       
Cost of revenues (exclusive of depreciation and amortization)180,782  134,256  348,163  260,143 
Selling, general and administrative expenses64,241  55,976  125,735  102,914 
Depreciation and amortization expense6,123  3,903  11,225  8,103 
Other operating expenses, net606  40  780  240 
Income from operations32,080  23,606  62,411  46,426 
Interest and other income, net1,138  1,299  2,349  2,457 
Foreign exchange loss(2,295) (465) (3,585) (6,219)
Income before provision for income taxes30,923  24,440  61,175  42,664 
Provision for income taxes6,493  5,209  12,846  8,719 
Net income$24,430  $19,231  $48,329  $33,945 
Foreign currency translation adjustments(2,386) 3,674  2,313  944 
Comprehensive income$22,044  $22,905  $50,642  $34,889 
        
Net income per share:       
Basic$0.49  $0.40  $0.97  $0.70 
Diluted$0.46  $0.37  $0.92  $0.66 
Shares used in calculation of net income per share:       
Basic50,211 48,584 49,688 48,237
Diluted53,271 51,917 52,803 51,461
        

EPAM SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(US Dollars in thousands, except share and per share data)

 As of
 June 30, 
 2016		 As of
 December 31, 
 2015
Assets   
Current assets   
Cash and cash equivalents$280,724  $199,449 
Time deposits—  30,181 
Accounts receivable, net of allowance of $2,997 and $1,729, respectively178,796  174,617 
Unbilled revenues96,045  95,808 
Prepaid and other current assets15,273  14,344 
Employee loans, net of allowance of $0 and $0, respectively2,684  2,689 
Deferred tax assets—  11,847 
Total current assets573,522  528,935 
Property and equipment, net66,751  60,499 
Restricted cash246  238 
Employee loans, net of allowance of $0 and $0, respectively3,478  3,649 
Intangible assets, net55,962  46,860 
Goodwill110,668  115,930 
Deferred tax assets25,991  18,312 
Other long-term assets7,270  4,113 
Total assets$843,888  $778,536 
    
Liabilities   
Current liabilities   
Accounts payable$3,005  $2,576 
Accrued expenses and other liabilities29,557  60,749 
Deferred revenue3,356  3,047 
Due to employees33,421  26,703 
Deferred compensation to employees910  5,364 
Taxes payable21,765  29,472 
Total current liabilities92,014  127,911 
Long-term debt40,088  35,000 
Deferred tax liabilities2,819  2,402 
Total liabilities134,921  165,313 
Commitments and contingencies   
Stockholders’ equity   
Common stock, $0.001 par value; 160,000,000 authorized; 50,884,007 and 50,177,044 shares issued, 50,866,612 and 50,166,537 shares outstanding at June 30, 2016 and December 31, 2015, respectively50  49 
Additional paid-in capital348,527  303,363 
Retained earnings393,383  345,054 
Treasury stock(156) (93)
Accumulated other comprehensive loss(32,837) (35,150)
Total stockholders’ equity708,967  613,223 
Total liabilities and stockholders’ equity$843,888  $778,536 
        

EPAM SYSTEMS, INC. AND SUBSIDIARIES
Reconciliations of Non-GAAP Financial Measures to Comparable GAAP Measures
(in thousands, except percent and per share amounts)
(Unaudited)

 Three Months Ended June 30, 2016 Six Months Ended June 30, 2016
 GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
Cost of revenues (exclusive of depreciation and amortization)(1)$180,782  $(4,438) $176,344  $348,163  $(8,082) $340,081 
Selling, general and administrative expenses(2)$64,241  $(8,599) $55,642  $125,735  $(15,919) $109,816 
Income from operations(3)$32,080  $15,558  $47,638  $62,411  $28,215  $90,626 
Operating margin11.3% 5.5% 16.8% 11.4% 5.1% 16.5%
Net income(4)$24,430  $13,501  $37,931  $48,329  $24,312  $72,641 
Diluted earnings per share(5)$0.46    $0.71  $0.92    $1.38 
                    


 Three Months Ended June 30, 2015 Six Months Ended June 30, 2015
 GAAP Adjustments Non-GAAP GAAP Adjustments Non-GAAP
Cost of revenues (exclusive of depreciation and amortization)(1)$134,256  $(3,765) $130,491  $260,143  $(6,249) $253,894 
Selling, general and administrative expenses(2)$55,976  $(8,488) $47,488  $102,914  $(15,200) $87,714 
Income from operations(3)$23,606  $13,287  $36,893  $46,426  $23,901  $70,327 
Operating margin10.8% 6.1% 16.9% 11.1% 5.7% 16.8%
Net income(4)$19,231  $10,849  $30,080  $33,945  $22,649  $56,594 
Diluted earnings per share(5)$0.37    $0.58  $0.66    $1.10 
                    

Notes:

 (1)Adjustments to GAAP cost of revenues (exclusive of depreciation and amortization) were comprised of non-acquisition related stock-based compensation expense recorded in the periods presented.
 (2)Adjustments to GAAP selling general and administrative expenses:


 Three Months Ended
 June 30,		 Six Months Ended
 June 30,
 2016 2015 2016 2015
Stock-based compensation expenses - Acquisition related$2,970  $4,951  $5,980  $9,443 
Stock-based compensation expenses - All other5,322  3,537  9,632  5,695 
Other acquisition-related expenses307  —  307  62 
Total adjustments to GAAP selling, general and administrative expenses$8,599  $8,488  $15,919  $15,200 
                


 (3)Adjustments to GAAP income from operations:


 Three Months Ended
 June 30,		 Six Months Ended
 June 30,
 2016 2015 2016 2015
Stock-based compensation expense$12,730  $12,253  $23,694  $21,387 
reported within cost of revenues4,438  3,765  8,082  6,249 
reported within selling, general and administrative expenses - acquisition related2,970  4,951  5,980  9,443 
reported within selling, general and administrative expenses - all other5,322  3,537  9,632  5,695 
Other acquisition-related expenses307  —  307  62 
Amortization of purchased intangible assets2,521  1,034  4,214  2,452 
Total adjustments to GAAP income from operations$15,558  $13,287  $28,215  $23,901 


 (4)Adjustments to GAAP net income:


 Three Months Ended
 June 30,		 Six Months Ended
 June 30,
 2016 2015 2016 2015
Stock-based compensation expense$12,730  $12,253  $23,694  $21,387 
reported within cost of revenues4,438  3,765  8,082  6,249 
reported within selling, general and administrative expenses - acquisition related2,970  4,951  5,980  9,443 
reported within selling, general and administrative expenses - all other5,322  3,537  9,632  5,695 
Other acquisition-related expenses307  —  307  62 
Amortization of purchased intangible assets2,521  1,034  4,214  2,452 
Foreign exchange loss2,295  465  3,585  6,219 
Tax effect on non-GAAP adjustments(4,352) (2,903) (7,488) (7,471)
Adjustments to GAAP net income$13,501  $10,849  $24,312  $22,649 
                


 (5)There were no adjustments to GAAP average diluted common shares outstanding during the three and six months ended June 30, 2016 and 2015.
Contact:
EPAM Systems, Inc.
Anthony J. Conte, Chief Financial Officer
Phone: +1-267-759-9000 x64588
Fax: +1-267-759-8989
investor_relations@epam.com

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